Estate PlanningEstate Planning is basically deciding who gets your stuff, when they will get it and how the transfer will be accomplished.

Who gets what is often one of the most difficult decisions to make when the bulk of your estate is farmland. Giving your children undivided interests in land produces difficulties for your children down the road. However, it is also hard to equitably divide your land, especially if you continue to buy and sell land after you create an estate plan.

In addition to land, plans for the following assets need to be made: livestock, crops, machinery, feed, investments, life insurance, savings, personal possessions, etc. The repayment of debts also needs to be addressed.

Farm Transition/Succession PlanningFarm transition/succession planning refers to creating a plan to transfer ownership and management of the farm upon the retirement, disability or death of the farmer. It involves more than simply dividing assets because the ability to continue the farm depends on the use of most, if not all the assets. This is a multi-faceted task with the primary objective of assuring that the family farm has the resources to continue operations for generations to come.

Transition planning also affects the current operation of the farm. By planning, you look at the best business structure to be currently using, examine and improve your farm management, reduce your liability, and make decisions on how you will transfer management to the next generation.

What to do

Educate yourself. Read about the issues and options available. Each person’s situation is unique. Identify the issues confronting you and your business. The best plans come from being fully informed.

Communicate. Talk with your spouse and children. They may have ideas that you do not see. Also, you will learn their expectations and feelings on these matters. Good family communication now will help avoid family problems later. Your children won’t be left wondering, “What were Mom and Dad thinking?!”

Gather Information. Make a list of your assets. Put together a Net Worth Statement. Gather all your current legal documents. This information is necessary to creating an estate plan.

Get Professional Help. Consult with your CPA, financial advisor and/or an attorney. Find a competent attorney who understands the issues facing farmers and ranchers, who listens to your needs and who will help you craft a plan for transitioning the farm to the next generation.

Here’s the scenario: Mom and Dad die leaving the family farm to their children in undivided shares. Dad had retired so the tenant keeps farming land. All the children left the farm to pursue careers in big cities far away. Everything has been going smoothly with the farm. The children, now in their sixties, have a nostalgic view of the family farm. They get along because they continue to operate the farm like Dad did. But one day one of the children wakes up and realizes, “We are getting older, what will happen when my brother dies? I don’t want to deal with his kids!”

Are you prepared for a creditor forcing the sale of your land to pay for your nephew’s debts? If you own land as tenants in common, you are a partner with the other owners. Your partnership will come to an end. If you haven’t planned for its end, the chance of it ending badly are greatly increased.

Where do you begin?
First, you need to understand the issues. Then you can begin to come up with a workable plan while everyone is still getting along. Here are some issues to address:

Peace in the Family
Money is important, but enduring peace in a family is more precious. By planning ahead, most disagreements and disputes can be settled amicably.

Control of Who Can Own the Farm
As ownership spreads to the next generations, the chance that a share of the farm will be sold to a third party increases. Your niece might want to raise some quick cash and sell her interest. A nephew’s interest might be attached by creditors. If you don’t agree to limit who can own the farm, you might find yourself dealing with an unwanted a new “partner.” Limited liability companies and rights of first refusal can be used to control who can own and control the farm.

Liability
Since real estate is an easy asset to find, it is important to reduce the exposure of liability to the land. Partnerships generally offer no protection from a partner’s creditors.

Nature of the Land
If your land is near a major metropolitan area, it may be ripe for commercial development. If so, how will the decisions be made to develop it. What if some want to keep the old farm intact?

Management
It is easier for three people to agree than it is for nine or more. There is also the practical consideration of obtaining every owner’s signature on a sales agreement, farm lease, etc. You need to decide how decisions are to be made and who can make them. Below is a partial list of management decisions.

Ownership
Ownership by tenants in common only works if all the owners can be in agreement. But what if a great nephew wants to park his mobile home next to the prettiest pond in the pasture? He can. What if someone (or their creditor) wants to force the sale of the land? They can.

Since it is usually best to manage, develop or sell land in a coordinated and planned manner, it is prudent to minimize the consequences of these scenarios. This can be obtained through the use of limited liability companies, carefully drafted partnership agreements, or enforceable owner agreements.

Business Structures
Business structures to consider are partnerships, limited liability partnerships, limited liability companies and corporations. Nine states, including Kansas, restrict the ability of most corporations and LLCs from owning or operating agricultural land. Therefore, you must ensure any company you set up complies with state law.

Conclusion
If you own land as tenants in common, you need to plan. The plan could be as simple as selling the land. However, if you want the family farm to continue, work through the issues above and create a plan that will promote peace and prosperity in your family.

One of the biggest issues facing a farmer/rancher is how to manage the farm/ranch after retirement, disability or death. Most do not have a plan for the orderly succession of the management. Failure to plan may prevent you from retiring, break up the family farm, cause hardship for your spouse and/or cause siblings to fight.

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